As discussed in an earlier post, the International Finance Corporation ("IFC") recently released an updated version of its Performance Standards on Environmental and Social Sustainability. The IFC uses the Performance Standards to manage the social and environmental risks and impacts associated with projects receiving IFC financing. The revised Standards reflect a number of important changes, particularly on the topic of engaging with communities, with special guidance related to indigenous peoples.

The Performance Standards, in essence, lay out three tiers of community engagement:

(1) Baseline Consultation

Pursuant to Performance Standard 1, companies are required to have a social and environmental management system ("ESMS") in place throughout the life of each project receiving IFC financing. As part the ESMS, companies must engage in consultation with communities that are subject to risks and adverse impacts from the project, and must respond to concerns raised by those communities. The depth of the required consultation is dependent on the specific risks associated with the project, and the concerns raised by affected communities.

The consultation requirements in the updated Performance Standards are substantially similar to the requirements reflected in the previous version, released in 2006. Specifically, the consultation should:

Begin early;

Be based on prior disclosure of information to communities in an accessible format;

Be free from coercion; and

Be documented.

(2) Informed Consultation and Participation

The revised Performance Standards establish additional consultation requirements for projects with “potentially significant adverse impacts" on local communities. In such instances, a company must conduct an “Informed Consultation and Participation” (“ICP”) effort, building on the basic consultation process.The company is supposed to utilize the information gathered in this consultation to mitigate impacts, tailor its implementation, and identify appropriate mechanisms for the sharing of project benefits.

It is not yet clear how much ICP will differ from the basic consultation process outlined above, although ICP will likely involve a more in-depth exchange of views and information.Until the IFC releases the Guidance Notes that will accompany the revised Performance Standards, companies face uncertainty regarding when ICP is triggered, and how, exactly, it differs from the baseline consultation that the Performance Standards require. The Guidance Notes are expected to be released in October 2011.

(3) Free, Prior, and Informed Consent of Indigenous Peoples

Most notably, IFC Performance Standard 7 now requires that a company seek the “free, prior, and informed consent” ("FPIC") of affected indigenous peoples. The IFC previously required that a company engage in “free, prior, informed consultation” with indigenous peoples.

The IFC has not yet provided detailed parameters regarding how a company would know that it has obtained FPIC, although the Guidance Notes may do so.Performance Standard 7 acknowledges that the process must involve the indigenous peoples’ representative bodies. The IFC seems to contemplate that the process is not one-size-fits-all and may look different from project to project or community to community, because it will depend in part on the customs of the affected population.Therefore, the Performance Standard calls on a company to:

Document that it has agreed upon a process with the affected community – presumably a process through which the community would express its consent or lack thereof; and

Document evidence of an agreement between the company and affected indigenous communities.

Performance Standard 7 notes that consent does not always require unanimity.Presumably, what is required will depend on the process that the company agreed upon with the community.

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With the release of the revised Performance Standards, companies face a number of new questions related to community engagement.For instance, when are different consultation or consent requirements triggered? What processes are adequate to fulfill them? Finally, when indigenous peoples are not involved, the IFC must still define in the Guidance Notes when projects have “potentially significant impacts” sufficient to trigger an ICP process, rather than a baseline consultation process.

In upcoming posts, we will look in more depth at revised Performance Standard 7 and its implications for companies.